5 Myths about Cryptocurrency Debunked
When you’re deciding where to put your hard-earned money, it goes without saying you need to understand both - where it’s going and what the risks are. Owing to the relative novelty of digital currencies, cryptocurrency myths abound. Below, we take a look at the most common cryptocurrency myths so you can weigh up the pros and cons of investing based on fact, not fiction.
Often the inescapable myths about cryptocurrency muddy the waters for those who are curious, but hesitant to invest. Initially introduced in response to the 2008 economic crisis, cryptocurrencies offered a new alternative to the traditional financial system. Although at the start, they were viewed with skepticism, the net worth and choice of cryptocurrencies on offer have exploded in those intervening years.
Common Cryptocurrency Myths: Separating Fact from Fiction
Myth #1: Cryptocurrencies Aren’t Secure
As cryptocurrencies aren’t issued by central banks, they are not recognized as legal tender. To some, they seem unsafe as they aren’t a recognized currency. As a digital currency based on blockchain technology, crypto is held on an exchange or in a wallet. It’s not FDIC-insured as money in a financial institution is. Instead, crypto relies instead on cryptographic methods to maintain security (hence the name).
Through encryption, linked blocking, and consensus mechanisms, your cryptocurrency is protected. There are some risks in relation to how crypto is stored and accessed, but there are ways to offset this. If you choose cold storage, i.e. a storage method not connected to the network or internet, you can protect your cryptocurrency from vulnerabilities or hackers.
By only transferring what you need to spend at any given time to your ‘hot’ (i.e. internet connected) wallet using a secure connection, you can keep your crypto gains safe. In other words, there are methods to securely maintain your crypto investments.
Myth #2: Cryptocurrencies Are Harmful to The Environment
You don’t understand why, but perhaps you’ve heard someone quip that cryptocurrencies present a threat to the environment. At a time when the effects of climate change are real and growing, it’s a legitimate concern. In order for many cryptocurrencies to function, they use what’s called a consensus mechanism.
This means that verifying and validating transactions uses a lot of computer power, particularly where this mechanism uses mining. However, not all cryptocurrencies use mining as a method of validation. Where they do, if that computer is powered by an energy grid that runs on fossil fuels, it is impacting carbon production. Where the energy grid is based on a sustainable model of energy generation, the carbon offset will invariably be lower.
By researching the way coins use energy sources for validation, you can choose the most environmentally friendly option. What’s more, as the blockchain technology cryptocurrencies run on continues to be developed, there’s potential for more sustainable methods of utilization to emerge.
Myth #3: Cryptocurrencies Are Used for Illegal Activities
According to a report by Chainalysis, a company that analyses data relating to cryptocurrency and cybercrime, only 0.34% of all crypto transactions were found to be illicit in 2020. Unfortunately, money laundering or financial crime can happen both within the regulated financial system as well as by those criminals who opt for cryptocurrencies to help fund or finance their operations. Individuals using money to resource crime and illegal activity has been happening since…well the advent of money.
At the same time, as mentioned earlier, governments are beginning to introduce laws and enforcement procedures against the use of cryptocurrency by criminals. So while there are individuals using crypto for less-than-noble ends, the proportion of transactions of this type is small. They certainly don’t represent the majority of cryptocurrency transactions by end users. In contrast, crypto donations are on the rise and offer a tax-deductible method of giving to worthwhile causes and charities.
Myth #4: Cryptocurrencies Face Government Crackdowns
A founding tenet of the original cryptocurrencies was their independence from government or banking institutions: they are decentralized and unregulated. However, this could change in the not-so-distant future. In the US, the Biden administration has proposed legislation that would bring more regulation to the crypto market. Meanwhile, EU regulators agreed on a proposal to bring cryptocurrencies under a regulatory framework in July 2022, subject to final approval.
The potential here could be a boon for investors. While increased surveillance of crypto gains and ownership may translate to reporting obligations, it could also enhance the safety of transactions and crack down on individuals using crypto for undesirable reasons. Moreover, it’s a sign: that cryptocurrencies are here to stay.
Myth #5: It’s Too Late To Invest in Cryptocurrency
Crypto may appear to some to have started out as a niche fad. In a relatively short period of time, it has become a global phenomenon. Unlike the early days, there’s now a vast amount of information out there to educate yourself before making an investment. There are also many regulated, secure platforms available for trading. And the BOTS app is one of them. The backbone of the app is automated trading strategies. The app has been developed with the vision of making trading accessible to everyone. Find out more about how the BOTS app works to start trading smartly today.
What’s more, cryptos fund NFTs – non-fungible tokens – aka tokenizations of digital assets that trade on blockchain-based markets. The future potential of NFTs is worth investigating if you’re interested in crypto investment. Growing economic inflation is causing concern. The maturing crypto market and diversity of coins on offer mean it’s certainly not too late to invest in cryptocurrency, that’s yet another cryptocurrency myth!
Cryptocurrency: Debunking the Myths
When it comes to any form of investing, you should always seek out advice and ask as many questions as possible. There’s a wealth of information available online to research before investing in cryptocurrency. As with any investment, knowledge is power and investments should only be made responsibly. Keep in mind there is no such thing as risk-free trading, and it’s possible to lose (part of) your stake.
This blog is for educational purposes only. The information we offer does not constitute investment advice. Please always do your own research before investing. Any views expressed in this blog and by BOTS do not constitute a recommendation that any particular cryptocurrency (or cryptocurrency token/asset/index), portfolio of cryptocurrencies, transaction, or investment strategy is suitable for any specific person.